Ottawa may delay spending to curb inflation: Former Bank of Canada Governor

The Government of Canada spendsBank of Canadaworking alone to curb the highestinflation ratein nearly 40 years. ..

When the pandemic began, Ottawa poured money into struggling individuals and businesses while the central bank lowered interest rates and bought bonds. Both wanted to help make up for the lack of demand.

Now that the economy has fully recovered, supply shortages, not demand, have become a major economic challenge, helping to boost inflation to 7.7% in May.

Central banks are aggressively raising interest rates, but government spending remains vast and is increasingly seen as one of the main drivers of inflation.

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"The only thing the government can do is help reduce demand by reducing spending a bit," Canada said. David Dodge, the former governor of the bank, said. Senior Advisor to Bennett Jones LLP.

"They have announced upcoming planned spending. They can simply delay it. It will be a very realistic contribution."

The Bank of Canada says it may need to raise the policy rate to more than 3 percent in order to slow the economy enough to curb inflation. More government support will facilitate the Bank of Canada's mission.

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A 2.3% reduction in government consumption by 2024 will reduce the peak policy rate by 75 basis points. Equivalent. Jean-François Perrault estimated in a recent memo.

According to a Bank of Canada survey, 23% of Canadians are one of the main factors that make it difficult to control inflation due to high government spending. I think it's up from 19% three months ago. Supply chain issues and pandemic sustainability were the biggest factors cited.

Canada's budget deficit will drop to 2% of GDP this year, down from its peak of 14.9% It is predicted. 2020-21, the lowest in the G7. But Canada can do more because government revenues benefit from soaring commodity prices.

Last month, Treasury Minister Chrystia Freeland outlined a previously announced $ 8.9 billion spendingfocused on easing Canadians' living expenses in the face of rising inflation. Did.

Freeland said Canada has taken a "responsible and balanced approach" to inflation, but she does more to mitigate price increases. Did not rule out that.

"Government spending levels appear to remain permanently higher than they were before the pandemic," said Stephen Brown, senior Canadian economist at Capital Economics.

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Governments, especially local governments, have tough wage negotiations, resistance to price increases in contract services, and some: Inflation can be reduced by leading the project. Road repair, Dodge said.

"As central banks and governments have united to stimulate a pandemic exit, we now need to act in the opposite direction to curb the excessive demand pressure that is causing inflation." Said Sal Guatieri. , Senior Economist at BMO Capital Markets.

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